Health ‘Conversion’ Organizations Saw Assets Top $15-Billion in 2001

Tax-exempt organizations created when nonprofit hospitals and other health-care providers

converted to businesses have the potential to distribute more than $750-million for health-related programs around the country this year, a new report says.

“Conversion” health organizations that responded to a survey by Grantmakers In Health — a group in Washington that works with foundations and corporate-giving programs — reported a total of $15.3-billion in assets in 2001. These assets undoubtedly would have been greater, according to Grantmakers In Health, if not for last year’s slide in the stock market.

Much of the health-conversion assets are held by California organizations, according to another report, which was published by the Center on Philanthropy and Public Policy at the University of Southern California. Grant making for health-related activities statewide amounted to more than $325-million in 1999, an increase of almost 15 percent over the previous year, the report said, with almost two-thirds of the grants coming from health-conversion organizations.

The report on national trends by Grantmakers In Health was based on data from 139 groups, up from 129 surveyed last year.

About 45 percent of the conversion organizations in the report are private foundations with assets of $9.5-billion; half are grant-making charities with assets of $4.6-billion; and most of the rest are social-welfare groups with assets of $1.2-billion.

Because federal law requires that private foundations distribute about 5 percent of their investment assets each year, conversion organizations in that category are likely to make grants of approximately $475-million this year. Conversion health charities and social-welfare groups, even though they are not subject to the 5-percent requirement, are also expected to spend about 5 percent of their assets this year — upwards of $275-million.

To date, Grantmakers In Health has identified more than 165 organizations that are either new groups created through conversion agreements or existing ones that have received assets from conversions.

Most of the organizations that participated in the survey have been created since 1994, as nonprofit hospitals, health-care systems (a group of hospitals, for example), and health-insurance plans were sold to, or merged with, for-profit companies or other nonprofit groups. Many states require that some or all of the assets of such organizations continue to be used for charitable purposes, usually relating to the original organization’s mission.

Conversions Continue

Grantmakers In Health identified two new organizations in 2001 that resulted from conversions: the Connecticut Health Foundation, a social-welfare group in Farmington, and the Annie Penn Community Trust, a private foundation in Reidsville, N.C.

“Our findings suggest that the formation of new health [organizations] will continue, especially as more health plans convert to for-profit status,” said Malcolm V. Williams, senior program associate at Grantmakers In Health and principal author of the report.

Mr. Williams said that 22 organizations in the report trace their roots to conversions of health-insurance plans. Of those, six arose from transactions involving Blue Cross plans. Four other Blue Cross conversions were identified but were too new to be included in the survey.

Mr. Williams noted that Blue Cross conversions have been pending in three other states. “Depending upon what finally happens with the Blues’ conversions in Maryland, New York, and North Carolina, we can hope to see more new health foundations in the future,” he said.

Some nonprofit leaders are concerned that state governments will siphon off for other purposes the large sums of money generated from conversions that the leaders maintain should go to tax-exempt groups (The Chronicle, January 24).

The New York State Legislature earlier this year approved a plan to take most of the approximately $1-billion that becomes available through the conversion of Empire Blue Cross and Blue Shield into a for-profit corporation. Under the plan, Empire would give 95 percent of Blue Cross assets to the state to pay for raises for hospital employees and other health-care expenses. The remaining 5 percent of the assets — about $50-million — would go to create a foundation dedicated to improving health care for poor New Yorkers.

The 139 organizations responding to the Grantmakers In Health survey also provided detailed information about their structure, board composition, grant making, and community involvement.

Copies of the report, “Assets for Health: Findings from the 2001 Survey of New Health Foundations,” are available for $30 each from Grantmakers In Health, 1100 Connecticut Avenue, N.W., Suite 1200, Washington, D.C. 20036; (202) 452-8331; fax (202) 452-8340. A free copy of the report is also posted on the organization’s Web site, http://www.gih.org.

A free copy of the California report, “Health Philanthropy in California: The Changing Landscape,” by the Center on Philanthropy and Public Policy, is posted on the center’s Web site,http://www.usc.edu/philanthropy.

ASSETS OF HEALTH-CARE “CONVERSION” FOUNDATIONS